AREA, Adler Group Close First Phase of $350M Portfolio Purchase from WRIT

AREA Property Partners and Adler Group, acting together in a joint venture as AP AG Portfolio L.L.C., have completed the first step in acquiring a 3.1 million-square-foot portfolio of office and industrial properties from Washington Real Estate Investment Trust.

September 7, 2011By Barbra Murray, Contributing Editor

AREA Property Partners and Adler Group, acting together in a joint venture as AP AG Portfolio L.L.C., have completed the first step in acquiring a 3.1 million-square-foot portfolio of office and industrial properties from Washington Real Estate Investment Trust. The partners will ultimately spend $350 million to purchase the group of 18 properties encompassing 56 buildings in metropolitan Washington, D.C.

“What we like about this portfolio is we’re already buying into a strong market,” Matthew L. Adler, chief investment officer for Adler Group, told Commercial Property Executive. “The D.C. area has performed very well in the last few years. It’s withstood the economic downturn probably better than almost any other market in the country.”

The collection of multi-tenant office buildings and warehouse facilities includes WRIT’s seven-property I-95 South Portfolio in Northern Virginia, featuring 1.4 million square feet; the four-property, 800,000-square-foot Dulles Portfolio in Northern Virginia; and in Maryland, the five-property, 692,800-square-foot I-465 Portfolio and the two-property, 207,600-square-foot I-270 Portfolio.

With the closing of the initial stage of the deal, which consisted of three transactions, AREA and Adler Group are now in possession of nearly 2.4 million square feet of the predominantly industrial WRIT assets. The gargantuan portfolio has an average occupancy level of 79 percent. The national average vacancy rate is 9.8 percent in the industrial sector and 17.3 percent in the office sector, according to reports by commercial real estate services firm Grubb & Ellis Co. AREA and Adler Group have their work cut out for them, but they are anything but intimidated.

“We’re not counting on some huge recovery in order to be successful,” Adler noted. “All we want to do is manage and operate these properties very well. We have a strategy. We’re going to take the occupancy from the high-70 range into the low 90s and we’re going to do that through a lot of hard work. It’s going to take some time but we think, as a company that has specialized for years in multi-tenant properties, that this portfolio is really tailor-made for us to be successful on.”

The conditions are also right. “The market has done very well. There are very clear economic drivers. In general, we like to buy in communities that have positive population growth and very clear economic drivers and certainly, the Greater Washington, D.C., area fits both of those very well.”

He added that Adler Group and AREA will be able to rely on their longstanding relationship–they’ve been partners since 1998–to achieve their goals with the portfolio. “We’ve been very successful together for many years; it’s really the right team to take over these properties.”

The joint venture anticipates completing the purchase of the remaining 803,700 square feet of the WRIT portfolio in two transactions within the next 60 days, thereby relieving WRIT of all of its industrial assets in the area, and acquiring a new title. The deal will make AP AG the largest industrial real estate landlord in metropolitan Washington, D.C. — not that rising to that position was the goal.

“We’re excited about the portfolio,” Adler said. “We got great properties and, over the next few months, we’re going to focus on making sure that we’re managing them well. Our focus is on making great investments where we can acquire properties and, through strong operations, do a great job and make strong returns for our investors.”